Lecture_1_EC3332[1] - Why Study Financial Markets 1.Channel...

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Unformatted text preview: Why Study Financial Markets? 1.Channel funds from savers to investors. thereby promoting economic efficiency 2.Alfect personal wealth and behavior of business firms Lecture 1 Why Study Banking and Financial Institutions? 1.Financial Intermediation Helps get funds from savers to investors Why Study Money, Banking, and 2.Banks and Money Supply Financia| Markets? Crucial role in creation of money 3.Financial Innovation Why Study Money and Monetary Policy? 1.1nfluence on business cycles. inflation, and interest rates Bond Market Stock Market |955 IBM 1955 um ”75 1W ISLE IDS! m I men use «In um um if“ I.» nu me mu m m Foreign Exchange Market Money and Business Cycles mu (m 1973- Ina] tea ”5 I981 1B5 I070 1W5 min I“ “II in an) m Money and the Price Leve' Money Growth and Inflation 5 oBSJEEEii mumumgmtmelmmm Ammmnnm use use mu Inn mo the mo ma me was me Money Growth and Interest me ms in I965 1W How We Study Money and Banking Basic Analytic Framework 1. Simplified approach to the demand for assets 2. Concept of equilibrium 3. Basic supply and demand approach to understand behavior in financial markets 4. Search for profits 5. Transactions cost and asymmetric information approach to financial stmcture 6. Aggregate supply and demand analysis Features 1. Case studies 2. Applications 3. Special-interest boxes 4. Following the Financial News boxes 5. Reading the Wall Street Journal 6. Web Exercises and URLs Fiscal Policy and Monetary I . ' Percent 01 GDP 1850 I955 1960 1965 WW) 1975 moo 1965 1990 1335 2000 Appendix: Definitions Aggregate Output Gross Domestic Product (GDP) = Value of all final goods and services produced in domestic economy during year Aggregate Income Total income of factors of production (land. capital, labor) during year Distinctlon Between Nomlnal and Real Nominal = values measured using current prices Real = quantities. measured with constant prices Aggregate Price Level nominalGDP reaiGDP _ $10 trillion _ GDP Deflator — W _1_11 Consumer Price Index (CPI) price of "basket" 01 goods and services GDP Deflator = Appendix: Definitions Growth Rates and the Inflation Rate Growth Rate = m x 100 xfil GDP Growth Rate = WXIOO = 5.6% $9 trillion Inflation Rate = lull—ll 1 I XIOO = 1.8% ...
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